Fiserv Inc (FISV) 2007 Q4 法說會逐字稿

Welcome to the Fiserv fourth quarter 2007 earnings conference call. All participants will be in listen-only mode until the question-and-answer session begins following the presentation. Today's call is being recorded and is also being broadcast live over the Internet at www.fiserv.com. In addition, there are supplemental materials that will be referenced on today's call, available at the Company's website. To access those materials go to www.fiserv.com and click on the learn more link adjacent to the Q4 earnings call icon on the home page. The call is expected to last about an hour and you may disconnect from the call at any time. Now I will turn the call over to Mr. Jeff Yabuki, President and CEO of Fiserv.

Thank you. Good afternoon everyone, thanks for joining us for our fourth quarter conference call. With me today are Tom Hirsch, our Chief Financial Officer; Norm Balthasar, who recently retired as our Chief Operating Officer, Norm will be staying with the Company through June 30, helping to transition his responsibilities and assisting with CheckFree and Fiserv integration activities. We are grateful for the many contributions Norm has made in his 30 plus year as one of the Founders of the Company. And will miss his insightful commentary and deep industry knowledge.

Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of factors that could cause Fiserv's results to differ materially from our current expectations. We will make forward-looking statements about, among other matters, revenue growth, earnings per share, operating margin, cash flow targets, sales pipelines, our CheckFree integration efforts, the disposition of certain Fiserv businesses and our strategic initiative, Fiserv 2.0. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties.

Please refer to our earnings release which can be found on our website at www.fiserv.com for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measure. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results and as a basis for planning and forecasting for future periods.

Before I get to the results, I want you to know that our remarks today will be longer than usual, due to the complexities associated with the quarter, involving the acquisition of CheckFree and multiple divestitures. As you know, we announced the sale of Fiserv Health in November and closed the transaction in early January. We also announced and closed two smaller lending divestitures. Therefore, the results of all of the sold businesses of which the majority is Fiserv Health, have been reclassified from continuing operations to discontinued operations in the fourth quarter of 2007, and for all prior periods. The majority of our discussion today will focus on our continuing operations results and our outlook for 2008. We anticipate a return to a more normal discussion in the first quarter.

Let me say upfront that Fiserv had a solid fourth quarter and a very good year. We delivered strong financial performance, made significant progress on our Fiserv 2.0 initiatives and took definitive actions to reshape the Company, all of which we believe will translate to significant value for clients, associates, and you, our shareholders. Adjusted operating income was $794 million for the full year, led by very strong performance in our financial segment. Adjusted segment operating income grew 17%, more than $100 million for the full year. Adjusted operating margin results in the financial segment were exceptional. Expanding by 270 basis points for the full year. Best of all, almost all of the segment operating income growth was internal, resulting from higher margin revenue growth and strong execution. This stellar performance offset a weaker year in the insurance segment, much of it due to the expected decrease in our high margin flood claims processing revenue.

Our 2007 free cash flow increased 15% to almost $440 million. Full year adjusted earnings per share were also up 15% compared with 2006, to $2.66 per share. Included in the reported 2007 adjusted earnings was a charge of $0.03 per share in the fourth quarter, associated with the creation of our offshore captive. Tom will provide more detail on this later in the call.

We exceeded our 2007 targets for both of our Fiserv 2.0 integrated sales and cost savings initiatives. You will recall that 2007 was our initial implementation year and accordingly we are off to a good start on pursuing these multiyear strategic initiatives. We took important action to transform Fiserv by reshaping our mix of businesses. We divested Fiserv Health, Fiserv Investment Support Services, and two of our lending operations. In each case, we felt that another provider would be in a stronger competitive position and thus, better able than Fiserv to deliver market leading results. And not to be overlooked we acquired CheckFree, to further solidify our position as a premier provider of financial services technology solutions. CheckFree provides a wide array of mission critical technology products and services that help financial institutions bring a stronger, more integrated relationship with their customers.

Combining CheckFree's capabilities with historic Fiserv gives us a full spectrum of solutions and a broader client base which we believe will enhance our growth, profitability, and market position over the short and long term. And lastly, we retooled our strong balance sheet by adding significant leverage, taking advantage of the strong recurring revenue and cash flow business models of both companies. We also maintained a solid investment grade rating which results in lower overall interest costs. Our acquisition and divestiture activity reached its culmination in the last 60 days. The CheckFree acquisition closed on December 3. Our cost and revenue synergy activities are in full swing and should provide substantial benefits as we proceed through 2008 and beyond.

Fiserv Health and the first part of the Fiserv ISS deals were closed on January 10, and February 4, respectively. Each is now reflected in discontinued operations. We have already received more than $660 million of net proceeds from these sales. We expect the remaining portion of the Fiserv ISS sale to close by the end of the second quarter. Finally, we disposed of two small lending businesses that had neither scale advantages nor significant synergies with other Fiserv businesses. Del Mar Database which provided loan broker management products and CredStar, a mortgage credit reporting business. Going forward, we will continue to be disciplined in reviewing our businesses, looking for the best way to strengthen our leadership position in serving the financial industry around the world.

Before I hand the call over to Tom, let me give you some quick impressions on the quarter. For comparative purposes, these results and the 2008 guidance we will provide later are adjusted for several items. The significant non-cash and tangible amortization that will be generated primarily from the CheckFree acquisition, incremental merger and acquisition costs associated with combining our two organizations, and last, other significant unusual items which could have the effect of distorting the ongoing operating results of the Company. Fourth quarter adjusted earnings per share from continuing operations were strong, up 19% to $0.69 per share from $0.58 in the prior year. Full year 2007 adjusted earnings per share from continuing operations were $2.66 per share, up 15% from $2.31 in 2006 including the $0.03 unusual charge I mentioned earlier.

Overall revenue in the quarter was up 19% to $1.1 billion. Adjusted internal revenue growth for the fourth quarter was 3% overall and 4% in the financial segment. Full year revenues were up 10% to $3.9 billion, with adjusted internal revenue growth of 3% overall, and up 5% in the financial segment. These results are consistent with both our 2007 guidance, and our commentary in October. For both the quarter and the year, the financial segment's growth rate was negatively impacted by over 1 full percentage point due to the decline in the home equity processing business in 2007. In addition, the Company's overall growth rate was negatively impacted in 2007 due to the significant decline in flood claims processing revenue from 2006, which will not impact our growth rate in 2008.

Company-wide adjusted operating income for the quarter was $219 million, an increase of 24% over the prior year's fourth quarter due to a combination of strong internal growth and the CheckFree contribution. Company adjusted operating margin was strong at 25.8% in the quarter, an increase of 110 basis points over the prior year. We continued to see strength in our financial segment with a 27% adjusted operating margin for the quarter, an increase of 200 basis points over the prior year. Our insurance segment while enduring a tough year generated $22.1 million in adjusted operating income in the quarter, increasing 8% over the prior period and up solidly sequentially. Now let me turn the call over to Tom for a more detailed discussion of the results, including reconciling continuing and discontinued operations and a brief balance sheet discussion. Tom?

Thanks, Jeff. And good afternoon everyone. As Jeff highlighted, there are a lot of moving parts to our results this quarter, due to the significant transformative actions we took in 2007. We have moved out of slow growth, non-scale businesses such as Fiserv Health and Fiserv ISS and at the same time added faster growing businesses such as CheckFree to extend our industry-leading position. We believe this will enhance long-term shareholder value, by enabling more integrated products and solutions for our clients.

In order to provide some additional clarity, we have compiled supplemental information in a slide presentation on our website. As we said at the beginning of our call, to access this information, visit our home page at www.fiserv.com, and click on the learn more link on our home page. That presentation will provide you with important information about our results, as well as reconciling our reported results to our previous earnings guidance for 2007. These charts will also factor in the acquisition related intangible amortization impact both on a historic Fiserv basis and including the addition of CheckFree. I will now refer to certain slides by number in the discussion today.

During investor day, and on our third quarter earnings conference call, we confirmed that for the full year 2007, we would be at the low end of our adjusted EPS from continuing operations guidance. As shown on page three of the slide deck, we start with $2.74 per share, which is the low end of our previous continuing operations guidance range for 2007. Next, we removed the results of the sold businesses, Fiserv Health and the two lending businesses, from our continuing operations guidance. The combined full year results of these sold businesses generated earnings of $0.20 per share, which is now reflected in discontinued operations. The $0.20 per share is made up of $0.22 of Fiserv Health earnings in 2007, reduced by a loss of $0.02 per share from the sold lending businesses. That nets to revised adjusted continuing operations guidance of $2.54 per share, before non-cash Fiserv acquisition related intangible amortization. We then add back the $0.12 per share of non-cash acquisition related amortization which doesn't include amortization related to CheckFree. For a revised 2007 continuing operations adjusted earnings guidance of $2.66 per share.

As Jeff mentioned earlier, we reported full year adjusted earnings per share from continuing operations of $2.66 per share. This new level, which excludes non-cash acquisition intangible amortization becomes our baseline adjusted EPS from continuing operations as we head into 2008.

On slide four, we have provided a similar reconciliation for the fourth quarter, which reflects a revised adjusted EPS target of $0.68 per share, based on previous guidance, versus the adjusted earnings we reported of $0.69 per share.

Slide five illustrates the calculation for adjusted EPS as reconciled from GAAP earnings that we will be supplying quarterly going forward. Adjusted EPS will show the underlying quality of the operating results by adjusting for significant non-cash items, such as acquisition intangible amortization and unusual items such as merger and integration expenses or restructuring charges, as we had in the lending division in the fourth quarter which impact our GAAP operating results. This presentation is consistent with how management evaluates underlying business performance at Fiserv.

For the quarter, the reconciliation starts with GAAP EPS and adjusts for the following items on slide five. First, employee severance and shutdown costs in the Company's lending and insurance businesses totaled $0.03 per share in the fourth quarter of 2007 and $0.04 for the full year. The fourth quarter 2007 charge results primarily from the severance and facility actions taken in our lending businesses to better align the cost structure with the lower revenues resulting from the overall market decline in home equity processing volumes.

Second, we incurred merger and integration expenses related to the acquisition of CheckFree, such as integration planning and project management, employee severance, and net interest on borrowings incurred prior to the December 3, closing. These merger costs and other adjustments totaled $0.05 per share. In accordance with GAAP, merger and integration costs such as severance and facility shutdown costs directly related to existing Fiserv operations and employees, whether the actions are related to integration or not will be expenses incurred. However, direct merger and certain integration costs related to CheckFree operations are recorded in purchase accounting for the acquisition and not expensed through the income statement. We expect to incur these expenses in 2008 as we optimize the cost structure of the combined Company.

Third and the most significant adjustment is the non-cash intangible amortization from acquisitions. This adjustment will be significant going forward, due to the substantial intangible amortization associated with the acquisition of CheckFree. We believe this statement presentation best reflects the underlying operating results of the business, and is closely aligned with the free cash flow generation of the Company. There are two notable items to the earnings for 2007 and the fourth quarter. One negative and one positive. Included in our adjusted EPS results for the year of $2.66 per share and $0.69 for the quarter that had not been previously considered in our guidance.

First, as Jeff mentioned, we incurred a $7.5 million charge in the fourth quarter of 2007 or $0.03 per share in connection with an amendment to an October 2005 employment agreement related to the creation of our wholly owned offshore captive operation. The original agreement required the Company to make a one time special performance payment based on the multiple of the cumulative operating profits of the business through the end of 2008. In order to further accelerate our cost globalization efforts within Fiserv 2.0, we amended the agreement to provide for two payments, an initial $7.5 million or $0.03 per share which we expensed in the fourth quarter of 2007 and the second payment of $7.5 million or $0.03 per share to be earned and expensed in 2008 and paid in 2009. We are required to expense the second payment in 2008 under the accounting rules due to ongoing performance obligations in the employment agreement. In essence, we are paying approximately $10 million after tax for what has become a world class captive operation, which has grown from a start-up in late 2005 to having more than 1900 employees today. We believe that our wholly owned captive could grow by as many as 1,000 employees in 2008 alone, providing us with more leverage on both cost and investments.

We also benefited in the fourth quarter by the solid results of CheckFree which had not been part of our previous guidance. Given the December 3, close, our results included CheckFree for 28 of the 31 days of December. The inclusion of the CheckFree results had a positive contribution to adjusted EPS including debt service of about $0.02 per share. Also, with the CheckFree deal closing in early December, we will now have 11 months of incremental benefit from the acquisition in 2008, when compared with 2007.

Slide six shows the 2007 and 2006 impact of the discontinued operations earnings per share of the businesses we sold. The $0.13 of charges in 2007 were primarily transaction related expenses, such as retention bonuses, severance costs, and legal expenses related to the disposition of Fiserv ISS and Fiserv Health. As Jeff mentioned earlier, we have received net proceeds of about $660 million from the sold businesses, which will be used primarily for debt repayment. That amount excludes proceeds from the second part of the Fiserv ISS sale, and excludes any contingent payment to be earned in connection with the sale of Fiserv ISS. Although these transactions are dilutive to earnings per share on a standalone basis in 2008, we are confident that the net effect of these dispositions will be accretive to our long-term growth rate and enhance our focus on serving the financial industry.

Our financial segment finished the year with another strong quarter, capping off a very good year. Fourth quarter segment revenues were $769 million, with adjusted internal revenue growth of 4%. The primary sources of internal revenue growth in the quarter were once again the higher margin payments in core processing areas, offset by an estimated 1 percentage point decline in our home equity processing businesses and by the final transition of our remaining JPMorgan Chase item processing business. For the full year, financial segment revenues were $3 billion, and the adjusted internal revenue growth rate was 5%. This full year growth rate was negatively impacted by more than 1 percentage point as a result of the downturn in our home equity processing businesses within our lending division. Adjusted operating income in the financial segment was up 13%, to $177 million in the quarter. For the full year, segment operating income was up a very strong 17%, to $698 million. Almost all of it internally generated, primarily through higher margin revenues and operational efficiencies. As Jeff mentioned, adjusted operating margin in the segment was 27% in the quarter, up 200 basis points year-over-year. And was 27.1% for the year, up 270 basis points compared with 2006.

In the insurance segment, revenues in the quarter were $255 million. And adjusted operating income was $22 million, up 8% over the fourth quarter of 2006. Full year 2007 adjusted operating income was $77 million, down 27% from 2006 full year levels, due to the almost $35 million year-over-year decline of very high margin flood claims processing revenues in 2007. We will not have this comparability issue as we head into 2008. Going forward, our insurance businesses will be comprised of Insurance Technology Solutions focused on the life, property, and casualty, and workers' compensation segments of the insurance industry, along with our healthcare technology platform for consumer driven healthcare.

CheckFree, which is shown as a separate segment for this stub period only, generated $90 million in revenue for the 28 days of December we owned the business. Adjusted operating income was $27 million in the period, with adjusted operating margin of 30%. It is important to note that the results of CheckFree are not directly comparable to historical results, given it is only 28 days of performance. The results are impacted by a timing of software license sales, a reduction of stock based compensation due to the acquisition, and a number of other items.

We have been working diligently on achieving synergies for several months and our integration teams are making good progress. We have plans in place to execute our cost synergy plans and our first wave of actions was completed in early February. We are on track with the targeted costs and revenue synergy ranges that we laid out at our investor day in October. Jeff will provide more detail when he talks about our guidance for 2008.

Bill payment transactions for the quarter, which in this case include CheckFree's results for the entire fourth quarter, were $301 million, surpassing the $300 million transaction level for the first time ever. Recording solid 20% year-over-year growth. Calendar year bill payment transactions were $1.1 billion, up 21% year-over-year. We also delivered $68 million E-bills in the quarter, a year-over-year increase of 24%. We intend to continue reporting on these two important metrics related to electronic bill payments and E-bill volumes. We will also be realigning our reporting segments in 2008, to reflect how we are managing the Company with the acquisition of CheckFree. The former CheckFree entity will not be reported as a separate segment but instead will be merged into new reporting segments which reflect the management of the consolidated Company. We currently anticipate a minimum of four external reporting segments in order to provide you with continuing transparency into our results. We will share the new segments with you when we report our first quarter earnings.

Full year 2007 operating cash flow from continuing operations was 564 million, compared with 542 million in the prior year. Full year free cash flow was up 15%, to $438 million, compared with $380 million in 2006. This increase is driven primarily by solid working capital management and an increased focus on capital spending throughout the Company. Full year 2007 capital expenditures were 160 million, down slightly more than 1% compared with 2006. Our effective tax rate for 2007 was 38.2%, versus 37.8% for 2006. We expect our effective tax rate for 2008 to be 38.5%.

We ended the calendar year with a little under $4.9 billion in long-term debt, plus about $500 million in current maturities. These amounts reflect the incremental $4.4 billion in debt incurred to fund the CheckFree acquisition. These year end amounts do not include any debt repayment related to the completion of the Fiserv Health and Fiserv ISS dispositions which occurred in 2008. With that, I'll turn the call back to Jeff.

Thanks, Tom. We had a strong finish to the year on our key Fiserv 2.0 initiatives. Momentum built throughout the year, spurring progressively better results and increased confidence in our ability to achieve our program goals. Our 2007 incremental integrated sales goal was $26 million in annual recurring revenue. On our way to achieving an incremental $360 million of annual revenue by 2012. For the year, we delivered sales equating to $30 million in annual recurring revenues, 115% of our original target. We also exceeded our target of $15 million of operational efficiency benefit in 2007, which shows up in operating earnings and improved margin. We generated $20 million in savings during 2007, a full $5 million over our target level. This strong 2007 performance is en route to our target of achieving $125 million in operational efficiency savings.

Overall sales quota attainment was 100% for the quarter, and finished at 97% for the full year. Those results were restated to reflecting operations. The slight shortfall in quota attainment was expected due to the weak sales performance in our mortgage related businesses. Excluding those businesses, we are right on track for the full year. As you may recall, the 2007 quota targets were increased to reflect our higher expectations for performance.

As we shared with you in October, we have been winning more than our fair share of the competitive deals and retention remains strong. We are constantly working to enhance our value proposition, to have the best in market solutions so that trend will continue. On balance, we are pleased with our overall sales performance and have solid pipelines and momentum going into 2008.

For 2008 guidance, let me first remind you that our growth assumptions are based on our 2007 adjusted earnings per share of $2.66, which includes the partial December results for CheckFree. In October, we provided an illustration of the financial impact of the CheckFree acquisition for 2008, in conjunction with affirming our long-term performance outlook. In finalizing our 2008 guidance, there are three discrete items that were not included when we provided those performance insights into 2008.

First, we sold Fiserv Health, which after allocating the net proceeds to reduce debt, is dilutive to 2008 earnings by about $0.10 per share. Next, the payment related to building the offshore captive will reduce 2008 earnings by about $0.03 per share. And finally, given the significant declines in interest rates over the last several months, and our belief that the Fed will continue on that path, CheckFree's float based interest income has been negatively impacted in the range of $0.05 to $0.06 per share. At the same time, we do benefit from lower interest costs related to the debt with floating interest rates. However, that benefit will not offset the floating income deficit in totality given that the preponderance of our debt is fixed at attractive rates. In total these three items have the cumulative effect of reducing the potential 2008 earnings outlook that we presented to investors in October by $0.14 to $0.18 per share. Even with these headwinds, we are expecting to deliver very strong results in the upcoming year.

For 2008, including the acquisition of CheckFree, we anticipate adjusted earnings in a range of $3.33 to $3.47 per share. This translates to continuing operations earnings growth of 25% to 30% per share. You will note that we have set our guidance range a bit broader than usual, to reflect the variability in the current macroeconomic environment. While we remain confident in our earnings outlook, given what we can see today, we are following market trends closely and prudently managing our businesses. For 2008, we expect our earnings growth to skew to the second half of the year, due largely to the ramp-up of CheckFree related synergies and normal business growth. For reference, slides eight and nine of the presentation include more detail on 2008 guidance.

We anticipate that our adjusted organic revenue growth for 2008 will be in a range of 5 to 7%, with our financial services related businesses at the upper end of that range, and the insurance businesses at the lower end. We are planning for continuing pressure in our mortgage related businesses through the majority of 2008. We estimate that adjusted operating margin will expand by at least 75 basis points for the full year, consistent with our long-term performance outlook. We anticipate that our free cash flow for 2008 will grow in a range of 23 to 30%. We will continue to be pragmatic in managing our capital expenditures, focusing on those areas where we believe we can further differentiate our solutions. And as we stated previously, we intend to use the majority of our 2008 free cash to pay down debt, and we anticipate that we will repurchase stock primarily to offset normal equity dilution.

As you know, we are tracking a couple of Fiserv 2.0 key metrics. On the first, integrated sales, we expect to achieve $65 million in incremental sales to core clients in 2008. We would expect those sales to translate into recurring annualized revenues in 2009. Second, with regard to our Fiserv 2.0 operational effectiveness initiative, we expect to achieve an incremental $20 million in 2008 for a total of $40 million of annualized operational efficiencies captured by the end of the year, and this is distinct from synergies included in CheckFree. We are still in the process of recalibrating the impact of the health and ISS divestitures on this initiative. We will provide an update when we report first quarter results but don't anticipate any material impact on this important Fiserv 2.0 objective in 2008.

We are making good progress on our multi-year effort to realize $100 million in cost synergies from the CheckFree acquisition and we now anticipate we will achieve between 40 million and $50 million in 2008. The nature of our cost synergy actions will have the savings accelerate throughout the year. In 2008, we also expect to incur approximately 35 million to $45 million in merger and integration related items to achieve our long-term synergy targets.

While we are absolutely focused on achieving our cost synergy targets, we are making progress on the revenue opportunities in the CheckFree opportunity as well. As a result of the acquisition, we fully expect to increase our penetration rates in all aspects of electronic bill payment, presentment, and Internet banking. We are focused on providing solutions to Fiserv core processing clients who don't yet offer the services as well as growing market share competitively by leveraging our market leading products and scale advantages. We are committed to delivering the next generation of innovation in online banking, billing, and payments as a direct result of combining our broad market leading positions and accelerating certain investments in CheckFree's existing development. We have both the resources and the will to accelerate innovation in this space. Just as important, we now have a vastly larger capability to sell and install these innovations across the financial services landscape. We expect our clients to significantly benefit from these innovations.

We also see very interesting opportunities for our financial services clients in the areas of expanded risk management and payment infrastructure. Frankly, this is an area where we have been a bit surprised. We knew there was value inherent in CheckFree's software products but we didn't anticipate what we now believe may be significant new opportunities when combining come of CheckFree and Fiserv's Technology Solutions. Managing payment infrastructure and risk is a critical priority for financial institutions today and I think we will be the clear leader in this space as we bring some of these new products to market. I predict we'll surprise a lot of people positively in this area within the next 18 to 24 months.

Before I close, let me provide some insights into our view of the market. Our overarching view of the economic environment is similar to that of other industry participants. It's a somewhat challenging time. That said, we have several unique advantages which we believe give us a strong position in the current environment. First, our business model tends to center on mission critical applications and Technology Solutions, with a strong bias towards processing. We generate significant amounts of recurring revenue which tend to insulate us from dramatic swings, up or down, in results. In addition, we benefit from having a broad and deep client base, which encompasses financial institutions of all sizes and in fact, the majority of our revenue is sourced from the smaller financial institutions which tend to be less volatile and have stronger outsourced relationships with us.

In more difficult economic times, larger financial institutions will look for ways to gain efficiencies and often turn to outsourcing as the way to capture those benefits. We have a unique combination of Technology Solutions and privileged relationships across the Fiserv and CheckFree businesses which are leading to some interesting, albeit early stage scale concepts that leverage that notion. While challenging, we believe current market conditions are creating an opportunity for us to plow new ground in outsourcing and to use innovation across our wide array of products and services to further enhance our position with our clients. We are very optimistic about our future and have made significant strides to make the vision of Fiserv 2.0 a reality. We are well-positioned for strong results in 2008 and based on what we can see today believe we will deliver similarly strong results in 2009. Operator, with that we'll now open the lines for questions. Operator?

(OPERATOR INSTRUCTIONS) One moment, please. Our first question comes from Mr. David Koning, Baird, Mr. Koning, your line is open.

Hi, guys. First of all, just on the FI environment, thanks for providing some of that detail. It looks like you're talking about guidance for that segment, being closer to 7%, is it fair to say that on a stand-alone Fiserv basis it would be close to 6% and CheckFree might add 1%? If so, does that basically say that even though the environment might be challenging, it's pretty similar to the last few years type growth is really what you're looking for?

That's right, Dave. We feel like CheckFree is clearly going to add that 1% or so that we talked about previously that we're getting some lift from the Fiserv 2.0 work that we're doing, that is offsetting some of the weakness on the mortgage side. But in kind of the core processing businesses, in the businesses that I think we are most notably known for, the environment is not changing. The pipelines are strong. Momentum is good and clients are still looking to us to supply their technology solution.

Great. And then secondly I guess, thanks for providing all the data on guidance. Just a couple questions there. When you say similarly strong growth in '09, do you mean similar EPS type growth, 25 to 30%? And I guess the other question around guidance, you stripped out the earnings from health and earlier from ISS and from the Del Mar, et cetera. That takes I think in all, when you take all those pieces out, $0.28 of earnings out, next year you'll obviously have the cash. So is the benefit from the cash is that $0.20 or so to earnings next year, is that kind of the incremental benefit from that going into next year off of the 2.66?

Yes, I think, Dave what you're saying is that just to clarify, on the -- we're going to get the proceeds from both health and trust in 2008. So when you look at the adjusted earnings of 2.66 to your point, you probably got to add back, since we're using most of the proceeds, the 660 million to really pay down debt, so you add back probably about $0.15 of those cash proceeds to kind of get you to a number, 2.66 plus the proceeds used for interest paydown of roughly about $0.15, so to a baseline of about 2.80 and then obviously it's very strong growth from an EPS standpoint, 2.80 to our guidance of 3.33 to 3.47. So again, that's how I would kind of view that EPS growth and Jeff, do you want to add anything to that?

I think that's right. And Dave to the 2009 question, obviously it's early, but it's our take, given what we can see today and given what we believe that we're going to be able to accomplish in 2008, that we'll be able to deliver growth on a percentage basis that is similar to 2008 ex the impact of the redeployment of the net proceeds from the sales of the businesses.

Great. Thanks again for all the detail.

Sure.

Our next question comes from Mr. Greg Smith, Merrill Lynch. Mr. Smith, your line is open.

Yes, hi, thanks.

Hi, Greg.

The Street consensus looks like it's at the high end of the range or maybe a little bit higher. You obviously gave some kind of one timish items that maybe people weren't modeling and then you have the divestiture impact. A lot of moving pieces. The bottom line, the question I'm trying to ask, was there anything you saw in people's models, the Street models that just they didn't get it, or maybe they got the divestitures wrong, or double counted some CheckFree amortization, anything like that that you saw?

Hey, Greg, it's Tom, I think there's two things. One, first of all, as Jeff mentioned in the script, I think the earnings dilution associated with the health business, as Jeff mentioned, that's about $0.10. When we look at, again, to Dave's previous question, I think that's a big item. We also had the $0.03 on the employee settlement for the offshore captive that we talked about. So those were two items that really the Street was unfamiliar with until we give our updated guidance as we do. And back to Dave's earlier point, just to clarify that, our adjusted EPS at 2.66, we're going to get the net proceeds in, we'll use that to pay down our debt, so that adds about $0.15. So when you get to a base of 2.80, 2.81, growing to 3.33 to 3.47, that's growth of 19 to 23% which is obviously at the upper end of our long-term performance range. Jeff, I don't know if you want to add anything further to that.

I think our long-term performance outlook is 15 to 19%. Even at the bottom of our range, we're in excess of it. I think the only other thing is, given the interest rate environment since October, we've obviously seen the Fed take a lot of action and we believe the Fed's going to continue to do that. So we just have some softness in the float income as well. But beyond that, I think those are the big things that we believe were probably missed in most of the models and that's because when we announced in November the sale of health, we gave a range of 1 to 3%, depending on what we did with the proceeds. Obviously, as we had hoped, the CheckFree acquisition closed and therefore we took down the debt and repaid it when we received the proceeds.

Okay. That's helpful. Because obviously your underlying business trends look actually very, very good here.

We feel quite good about the margins. In a quarter that was pretty tough, the fourth quarter was difficult, term fees were down, and -- but our processing businesses really did quite well. Our integrated sales were looking awfully strong. We have a fair amount of momentum there. So it is -- it's coming together. But as you know, people had modeled some different numbers.

The same thing happened to your competitor when they did a big merger. There was initially some confusion. Anyway, just the float businesses, is that on the CheckFree side?

That's correct.

Okay. Okay. And no plans to change anything in those businesses in the near term?

No, that's just part of their business model.

It's really inherent in the bill pay settlement.

Then one last question. Just any thoughts on CheckFree's software business and their investment services businesses, do these fit well? Are these going to probably be part of the organization over the long term?

Obviously it's early. On the software businesses, they're actually some really, really interesting pieces of, that's probably not the right word, but some pieces of software, pieces of technology that we think we can pair up with some of the Fiserv technologies and really go to market in some interesting and innovative ways. I think just yesterday or the day before, we announced a remote capture product for consumers, which ties -- dove tails very nicely with the millions and millions of bill pay relationships that CheckFree has and all of the retail clients that we serve on the core processing side. But the big win I think there, Greg, is on the risk -- operational risk management side, which we think is a really interesting opportunity for us out of some of the legacy character assets as well as the Rev E business which is really around efficiency consulting and helping banks right now and they're under a lot of pressure. We think that's quite interesting. On the investment side, that's a good solid processing business. It's not exactly core processing, but it's a deep relationships with the financial institutions that they serve and they have a very, very deep and wide moat around their business because of the logical connections that they have in order to price the investments on a daily or on a periodic basis. For now, we're very comfortable with everything that we have and the investment services business is actually delivering some pretty attractive results.

And I would just add to that, regarding the software business, the teams both from CheckFree and Fiserv legacy have been working together, just fantastic. That process has gone exceptionally well. We are continuing to find lots of things in those businesses that are going to benefit our clients over the long haul. So it's been really exciting as far as that piece and the value that we can add in the long-term there.

Great. Thank you.

Thanks, Greg.

Next question comes from Mr. Tien-tsin Huang, JPMorgan. Mr. Huang, your line is open.

Thanks. I guess I also want to just clarify on the guidance, just for my own benefit. I think the difference was really the offshore. I think that was $0.03, right in terms of the settlement and then the lower float balance income, could you quantify again the lower float balance income and just review what the assumption was there to get there?

That's just the lower, the decrease -- we just took the calendar '07 float interest income, and basically just a reduction in the rate. So that was $0.05, $0.06.

$0.05 to $0.06.

Then Tien-tsin, the $0.03 was in '07 and then another $0.03 in '08 related to the captive.

That float, is that primarily tied to the bill pay business or is that also under account balance transfers as well?

No, primarily the bill pay.

Okay. But otherwise, no major changes in the accretion assumptions behind CheckFree?

No, no.

Last question from me. The lending side, did that end up driving about the $0.05 to $0.07 that you called out in the second half of the year, and what are you assuming for 2008?

Obviously our guidance is going to reflect the current market environment. We took some substantial actions as we talked about, we took a charge here in the fourth quarter to consolidate some operations in that home equity processing area. We continue to watch that business very closely. We have seen some stabilization at low levels early here in January but we factored in some conservative estimates for that business going forward into 2008.

Yes, I would just say, maybe for a little bit of -- at least my perspective is actually that business performed even worse in the fourth quarter, we're not going to talk about on a detailed basis but it performed worse and I don't think that's a surprise, given the home equity markets. And then I mean, we are fairly bearish on that business for the majority of 2008. So we're not looking for that business to have a whole lot of turnaround. But we did the take a lot of actions as we said we would back in the third quarter and so we're comfortable that we've got our expenses as aligned as we can, at least at current levels.

Got it. Congrats on all the divestitures.

Thanks.

Our next question comes from Mr. Julio Quinteros. Your line is open.

Hi, this is actually Vincent in for Julio. Just a couple of quick questions regarding the guidance. The 75 basis point improvement in operating margin, could you provide us the baseline, meaning the 2007 comparable operating margin number?

Yes, that would be in our -- the 2007 comparable would be the 26 -- that would be the adjusted operating margin for the Company for the year which was 26.1%.

Just for clarity, Vincent, we said it would be at least 75 basis points, not at 75 basis points.

Got it. Okay. Thanks. And then as for free cash flow, I think that you mentioned it's going to be 23 to 30% year-over-year growth. Is the baseline number that we should be looking at, is that the 430 million?

That's correct.

Got it. Okay. And lastly, just for the lending business, could you quantify, if possible, the size of that business in terms of revenue and profit contribution as it currently stands right now?

Is that in the home equity processing business?

Yes.

Yes, the revenues have come down. It's roughly around $200 million and the margins are typically lower than our Company-wide margins. But I'm not going to go into much more detail than that. That's about the size of that business.

Great. Thanks.

Thank you.

Our next question comes from Mr. Glenn Greene, Oppenheimer.

Hey, guys.

Hey, Glenn.

All in all, it looks like, I think Greg, it was a very solid quarter. All the metrics looked good. I think there's clearly some confusion on the guidance. Let me just sort of take my stab at it. You can tell me where I'm wrong here. And then I've got a follow-up. It looks like $0.05 to $0.06 for the interest on the balance, on the float balance on CheckFree and it's actually $0.06 for the captive, right? $0.03 this year and $0.03 next year?

$0.03 in '07, $0.03 in '08, that's correct.

It's essentially $0.11 which would sort of put you in the range of where the Street is, I think. But my question relates to the 75 basis points on margin growth. It seems like it's kind of in the range of what your normal growth would be, let alone you're getting 40 million to 50 million of cost synergies, let alone CheckFree's margins are actually higher than your core business was. So I'm struggling a little bit with the 75 basis points. I know you said at least, but I would have thought it would have been a lot higher.

A couple things. That's a good point. On the 75 basis points, we are emphasizing at least because we think that's important. The second thing is we believe that there are some interesting opportunities in the market that could be in theory absolute kind of increased absolute profit, but potentially at lower margins as you look at some of the outsourcing business. And we don't want to constrain ourselves artificially by saying we're going to have 100X increase in margin. We really want to constrain ourselves by making sure we are making good decisions that increase the net present value of the client base. That said, notwithstanding that, given the synergies and some of the operational effectiveness, we do think at least is the appropriate way to think about margin.

Okay. And then as it relates to the free cash flow growth, a similar question, I guess the 23 to 30% growth range. I mean, CheckFree was kind of on an almost 200 million trajectory itself. So when you add that for a full year I would have thought you would have been higher from a free cash flow perspective for '08?

Well, you have some interest costs associated with that too, right, that you have to factor in. It's still a -- it's going to grow pretty commensurate with our earnings and we, again, Glenn, just to back up on Jeff's point, is we -- we're fundamentally as you know, the 75 basis points is a minimum and we're very comfortable with the numbers that we put out as far as our earnings guidance goes.

Just one more. Have you included any revenue synergies in the forecast for '08 or just the cost synergies you called out?

For '08 the revenue synergies are de minimus.

Okay. Thank you very much.

Thank you.

Our next question comes from Mr. Charlie Murphy, Morgan Stanley. Mr. Murphy, your line is open.

Thanks. Jeff, could you please expand on the interesting opportunities for '08 you were just describing and then if it's possible, could we isolate how much revenue and underlying EBIT from CheckFree you're expecting in '08?

Sure. Let me talk first about the interesting opportunities. Given what's going on in the environment, we're seeing much higher levels of interest, specifically in the -- call it the top 100 bank range, where the large institutions are looking to be far more creative now than they've been in a while in terms of outsourcing certain pieces of what may be non-core technology. And -- or non-core processes or whatever the case may be. And these are obviously long, exploratory, and I think I said, albeit early in the process. But given the payments processing and some of the kind of the privileged relationships that we have with clients, we have found ourselves in a more unique position than we've ever been before, in terms of being able to package different solutions up in a way that frankly, we don't believe anyone else has the capability to do as a stand-alone company. There may be folks that can kind of try to JV or partner together to get to the end point. We think we can get there on our own and those are the kinds of discussions that we're having. I probably can't be any more clear than that, except to say that those kinds of relationships tend to be of a little bit of a lower margin than we're seeing on some of our higher margin payments and those kinds of products, as well as, frankly, I think as we've been talking about for the last four quarters, we've been seeing more outsourcing going on even in the smaller bank space and that's good for our ASP based businesses and our products and those have nice margins. So we're basically saying we see some things that we want to explore and we think those will create some value for us over time.

Okay. Great.

And then on your question, Charlie, on CheckFree, at this stage, we wouldn't be, just like all the other businesses that we have, we don't talk about those kinds of assumptions on a stand-alone basis. So we're just really looking at the Company in the aggregate.

Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question comes from Kartik Mehta, FTN Midwest. Sir, your line is open.

Thank you. Good morning. Good evening, Jeff.

Hey, Kartik.

How are you?

Good, how are you.

Understand your statement a little bit that you said at the beginning. You said the environment was somewhat challenging. But you have a fairly good internal growth number for for the financial institution side of the Company. I'm just trying to understand what are the drivers for 2008 for that, for your internal growth?

Well, my commentary on the environment is really a macro comment. And it really that if you go out and talk to clients, clients will tell you it's a more challenging time and I think the larger the institution, the more challenged it is. As you well know, much of our business comes from a combination of our core processing, which is a big-time non discretionary type of a solution, as well as items like electronic bill payment and presentment, which is also a -- generally a non-discretionary type product. So we're in a place where we are able to generate revenue, really almost regardless of what's going on at the macro level.

Now, what I would say is is in our 2008 guidance, we don't assume big discretionary technology purchases and we're not assuming that our mortgage business comes back, so we're really kind of trying to bifurcate the stability of Fiserv and our recurring revenue business model from the challenges that exist in the environment and say based on what we can see today and given where we think people will spend and where they won't spend, we're very comfortable with our 5 to 7% and seeing the financial segment at the upper end. I suspect if you wanted to back extrapolate where we would have been two years ago if we had had everything we knew today, I suspect that we would be feeling even more bullish about the environment, given how people were spending at that point.

That makes sense, Jeff. Can you talk about how much more cash you're going to receive from the businesses that have been sold?

Yes, Kartik. We're pretty well -- we have a second piece of ISS which is remaining yet and that's going to be in the range of 50 million to 100 million then we have a contingent payment from TD which will be based upon the '08 numbers. So that will not probably come in until '09. So we've got the predominance of the cash in and the other piece right now on the ISS business is going to probably shoot for the end of the second quarter.

And Jeff, last question, I just wanted to better understand your answer to a previous question on 2009. You said you anticipated if the world stays the way it is similar growth in 2009. I think you were excluding something. And I apologize, I missed that. I wanted to make sure I understood what you were excluding or maybe what the impact might be.

Thanks for asking, Kartik. What I had said was we are receiving some benefit this year from the redeploying of the capital that we received on the divestitures. And so I think Tom said that adds about $0.15 a share to our, quote, earnings growth this year to our continuing operations earnings growth and so what I was saying is we would expect our growth in 2009 to be as it is in 2008, roughly, but we won't have the redeploying of the capital that we are getting this year for purposes of the business divestitures. However, we would see some benefit in 2009 from the paying down of the debt with our free cash flow that we will generate in 2008. And so you know, the statement is largely based on what we see the recurring revenue model that we have, and also where we believe we will be able to achieve our synergy targets, based on what we are doing in 2008 and what that will translate to in results in 2009.

So if I understand right, Jeff, so if I took 2008, excluded the $0.15, grew that number and then included some accretion for the paydown, that's the way you're thinking about it. Is that accurate?

Yes, so kind of a net growth, if you applied that net growth to the 2008 guidance, I think you'd be -- that would seem to make sense.

All right. Thank you very much.

Thank you.

Our next question comes from Mr. John Kraft, D.A. Davidson, Mr. Kraft, your line is open.

Hi Jeff, hi Tom.

Hey, John.

I wanted to comment or have a question about the bill pay transactions which accelerated pretty nicely in Q4. I guess my question is were there any larger wins in that and I guess the second question, piece of that would be, are there any large contracts coming for renewal in '09 or in '08? I'm sorry.

Yes, we haven't had -- the bill pay transaction growth I think was sequentially around 7, year-over-year about 20. And so it was really pretty much right on target. The fourth quarter historically, as you know, John, has been pretty good and so everything was pretty much right on track. As far as big renewals go, we have gotten one or two of those done here recently. But nothing else substantial that I'm aware of and just continuing to do the blocking and tackling with the larger institutions which is something CheckFree and now us deal with all the time.

Can you comment at all on Banc of America?

Yes, John, the comment that we have, we continue to -- we obviously have a contract with Banc of America. We think it's a good contract. We continue to operate on it. And we continue to have discussions with them. But for all intents and purposes we have an agreement that goes out to 2010 and we're quite happy with that agreement. John, the other thing I would say to Tom's point is and to the point that you raised is in an environment like this, we're going to expect to see compression, pricing pressure coming back from the large institutions on renewals and not unlike any other processing business, as you have kind of large double-digit growth that you're seeing I think there was a, 20, 21% growth in the quarter, or for the year, I mean, we're going to expect compression. We've planned for compression, and in this environment, you hear that word quite a bit.

Okay. Understood. And then my last question is you mentioned the contract fees, or I'm sorry the termination fees were lower than we've seen in some time. Is that a trend you expect to continue through 2008?

The termination fees are -- it's a little bit of a coin toss on every time there's a transaction, because if a transaction is in the last month of the agreement, the termination fee impacts are very different than if it's in the first month of the agreement. So we generally think term fees will be around the same area in 2008 that they were in 2007 and we would expect that to have some variability but it's just kind of normal course stuff that it's hard to predict.

Okay. Fair enough. Nice work so far on your margin improvements.

Thank you.

Our last question comes from Mr. Greg Smith. Mr. Smith your line is open.

Oh, hi again.

Hey, Greg.

Just on the mortgage business. I mean, if we actually think rates are going to come down on the mortgage side and we're going to get a bit of a re-fi boom, will that have a direct evidence benefit on your business?

Greg it will have a little bit of a benefit on us, but the majority of the processing revenues that we generate, so the substantial majority of the lending revenues that we benefit from are home equity type revenues. And interestingly, in a re-fi boom, where you have first mortgages that are -- have very low rates, that can actually have a counter effect on your level of home equity loans. The other interesting problem in the home equity market is as values continue to contract or where values have contracted, people are less likely to be able to take out home equity loans. Again, as much as we'd like to feel bullish about that, Greg, given the rate environment, we're continuing to take a bearish perspective and that's what we've incorporated in our 2008 guidance.

And just one last one, I don't think you talked about this. Can you share with us any response from some of the resellers of CheckFree, whether it's Digital Insight or some of the other guys as far as their plans going forward?

We obviously talked to people post closing as we had preclosing. We're not aware of any changes in any of the reseller arrangements. We saw the same press release that some folks saw earlier this week between a couple of -- at least one of our competitors and one of the resellers. We think that we have kind of the best value proposition for resellers. And we're -- they're important clients and we're very focused on actually building those relationships because we know we have only a 35 share in the processing market and we want to make sure that clients, even those who aren't our core processing clients have access to the world's best electronic bill payment and presentment solutions. We're working with them. They're important. We're going to continue to treat them in that fashion.

Thank you.

Thank you. All right. Well, I think we've kept everyone long enough. Thanks for being patient with us. We know this was a long call. And a lot of complexity. If you have further questions, please don't hesitate to contact our Investor Relations team. We're ready, willing, and prepared to work with you and of course thanks to everyone for your support. Good night.